The effect of Trading Halt Time on Returns, Trading Volume and the Process of Discovering Stock Price in the Tehran Stock Exchange

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1 Interntionl Reserch Journl of Applied nd sic Sciences 2013 Aville online t ISSN X / Vol, 7 (13): Science Explorer Pulictions The effect of Trding Hlt Time on Returns, Trding Volume nd the Process of Discovering Stock Price in the Tehrn Stock Exchnge Mehdi Ahmdi 1, Mohmmd Jnni 2, nd Ali Aqh-Mohmmdi 3 Accounting Deprtment, Islmic Azd University, orujerd rnch, orujerd, Irn Corresponding Author emil: mehdi364@gmil.com ASTRACT: Hlt of trding of pulicly trded compny is prcticed prior to relese of significnt informtion out compnies to provide investors n opportunity to nlyze the news. When pulicly trded compny fces considerle chnges tht cn potentilly influence its stock vlue, mrket uthorities provide investors with such mechnisms to tke ppropritely ction to the chnges nd void turmoil mrket. Since nerly ll conducted reserch delt with the effects of trding hlt rther thn its durtion, this reserch is imed to investigte possile correltion etween the durtion of the trding symol s hlt with its returns, trding volume, nd the process of discovering stock s price. To do so, hlts were divided into four groups sed on their durtion then the effects of time period on reserch vriles were studied. Dt ws gthered from compnies trded in Tehrn Stock Exchnge during Our hypotheses were exmined using vrince nlysis (ANOVA), Duncn Test nd Regression. The results revel significnt correltion etween hlt durtion nd the vriles under study. We found tht the longer the hlt time is, the higher percentge of chnge cn occur on the symol s opening dy. Also trding volume increses while stock s returns decresed, for shorter hlt durtion. Key words: hlt durtion of trding symol, return, trding volume, process of discovering stock price INTRODUCTION One of the importnt ojectives pursued in founding stock exchnge is to provide ll relevnt informtion concerning shre for ll investors. Designers nd lwmkers of finncil mrkets re lwys trying to employ different mechnisms to resolve the existing prolems concerning the informtionl inequlity, so tht they cn provide investors with equl rights. Hlt of trde is one of such mechnisms which refer to temporry hlt of the forml (legl) trding of prticulr shre in stock exchnge. Officils of stock exchnge my use supervisory mesures to provide dequte time for investors to evlute the ltest news nd informtion pulished y compnies. Mny studies were conducted on the dvntges or disdvntgeous of the trding hlt nd its effects on the mrket. In the present pper we investigte the potentil effects of the hlt durtion rther thn the effects resulting from the hlt itself. Previous Reserch Most of the studies in this field hve only exmined the dvntges nd disdvntges of trding hlt. However, there is no comprehensive study on the effects resulting from hlt time durtion of trding symol. Some of the studies conducted on the hlt with their corresponding conclusions re shown in tle1.

2 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 Reserchers Hopwell, et l (1978) De Ridder, (1990) erris Kumr, et l (1992) Lee Redy, et l (1994) Kry, Znowski, et l, (1998) Engelen, Peter, et l, (2005) /recep, ildik, (2004) country Tle 1. Reserch results of trding hlt concerning different res Numer of smples studied period Notify prty of trding hlt witing stte of price complete price modertion through new informtion trding volume The USA NYSE Yes Yes - - Sweden 137 The USA SSE No Yes - - The USA NYSE - No Cnd 412 elgium 210 Turkey ; voltility SEC Yes No Incresing Incresing Incresing fter hlt MSE Yes Incresing russels exchnge Incresing fter hlt Incresing periodiclly - Yes Incresing Incresing ISE - Yes Incresing Decresing Reserch hypotheses The min question tht present reserch is imed t ddressing is if there is significnt correltion etween symol s hlt durtion nd its returns, trding volume, nd the process of discovering stock price. In this regrd the following hypotheses were introduced nd their vlidity ws studied: H 1 : There is significnt correltion etween the trding hlt durtion nd the process of discovering the price of ny stock. H 1 : Chng in stock price on the opening dy cn e different depending on the durtion of the trding hlt in different cycles. H 2 : There is significnt correltion etween trding hlt durtion of symol nd its shre trding volume. H 2 : Chnges of the monthly trding volume efore nd fter the hlt depends on the hlt durtion. H 3 : There is significnt correltion etween symol s trding hlt durtion nd the return (profit) of its shres. H 3 : Monthly returns efore nd fter the hlt depends on the hlt durtion. METHODOLOGY This reserch cn e ctegorized s correltion sed on the methods employed in nlyzing the dt. The im of the reserch is to determine if there is ny significnt difference etween quntittive vriles. This reserch ws conducted using nlogicl nd inductive techniques. Sttisticl popultion nd smpling Sttisticl popultion of this reserch ws the compnies which were trded in the Tehrn Stock Exchnge in The smple size ws determined using the cse study method. In Tehrn Stock Exchnge trding hlt cn e issued for mny different resons in which moderting nd predicting return (profit) of the shre is the most importnt determining fctor. Therefore, only those compnies were selected s the sttisticl smple tht hd the sme type of trding symol hlt nd were suspended ecuse of moderting the return of the shre. In order to mesure the effect of the trding hlt durtion on depended vriles compnies were divided into four groups sed on the hlt durtion s follows: Trding symol with hlt time of 1 to 7 dys (descried s short term hlts) Trding symol with hlt time of 8 to 15 dys (descried s mid- term hlts) Trding symol with hlt time of 16 to 30 dys (descried s reltively long term hlts) Trding symol with hlts times more thn 30 dys (descried s long term hlts) or ech of the groups 30 smples of diverse industries were chosen rndomly. THE METHOD O DATA ANALYSIS In this study, min hypotheses ddress the effects of the hlt durtion on the vriles under study nd were nlyzed using regression test. On the other hnd su-hypotheses refer to significnt difference etween four 1052

3 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 hlt durtions. Vrince nlysis (ANOVA) nd Duncn tests were used to study the su -hypotheses. Excel softwre ws pplied to dt processing nd SPSS softwre ws used for dt nlyzing. inlly, Kolmogoroff- Smirnoff Test ws used to mesure norm of the dt. Hypotheses testing As shown in tle 2, level of significnce for Kolmogoroff-Smirnoff Test concerning the vriles is lower thn 5%, therefore the vriles do not hve normlized distriution. Hence, the normliztion ws performed y tking the Nturl Logrithm (LN) of the solute vlue of the dt in order to normlize the dt prior to nlysis. Given the fct tht su-hypotheses refer to significnt difference etween four hlt durtions, therefore they were tested s prerequisites prier to exmining the min-hypotheses. Tle 2. Kolmogoroff-Smirnoff Test to mesuring norm of dt return Volume Price exploring Numer ,822, Men ,155, devition Asolute vlue limit Positive limit Negtive limit Kolmogoroff vlue Level of significncs H 1 : Chng in the stock price on opening dy cn e different depending on the trding hlt durtion in different cycles. H 11 : Chng in the stock price on opening dy is not different depending on time period of trding hlt in different cycles. H 12 : Chng in the stock price on opening dy is different depending on time period of trding hlt in different cycles. Tle 3. vrince nlysis (ANOVA), compring price chnges on opening dy deling with different hlts Sum of squres Df Men of squres Significnce level Inter- group Intr group Summtion According to tle 2, in-group level of significnce is 5.7% nd it is very close to 5%, this level is considered significnt. As result H 11 is rejected ut H 12 is ccepted. Time period Tle 4. Duncn Test, price chnges on opening dy deling with different hlts Numer Mx error 5% Period of 1-7 dys Period of 8-15 dys Period of dys More thn 30 dys Significnce level A 1053

4 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 igure1. common letters refer to no difference price chnge on the opening dy As seen in tle 4 nd chrt 1, the longer the hlt durtion is the higher percentgee of price chnge would e on the opening dy. H 1 : There is significnt correltion etween the trding hlt durtion nd the process of discovering the price of ny stock. H 11 : numer of dys of hlt is not effective on price on the opening dy. H 12 : numer of dys of hlt is effective on price on the opening dy. model Correltion Tle 5. summry of regression model Determintion determintion error of estimtion Significnce level Tle 6. regression Price chnge on the opening dy=β0+ α dys of hlt Model stndrd 1 Nonstndrd Dependent vrile Independent vriles error et T Level of significnce Price chnge on the opening dy (Constnt) Numer of hlt dys 1/919 0/100 19/164 0/006 0/002 0/205 2/271 0/000 0/025 In ove tles it cn e seen tht while the mount of gined correltion etween two vriles nd the prediction gined from independent vrile re low, the significnce level of test is lesss thn 5 %, therefore liner correltion is ssumed to exist etween two vriles. It is seen tht the significnce level of T test for hlt durtion is less thn 5 %, tht is, 2.5% therefore; this vrile my e le to effect the price chnge on the opening dy, so tht it cn hve positive effect of on dependent vrile. Thus it cn e conclude tht the numer of hlt dys hs positive effect on price chnge on the opening dy, so tht the longer hlt time is, the higher price chnge would e on the opening dy (i.e. the process of exploring the price). 1054

5 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 (1) price chnge on the opening dy= (hlt dys) H 2 : Monthly trding volume differs depending ending on hlt durtion in different cycles. H 21 : There is no difference etween trding volume of pre nd post hlt, given hlt durtion in different cycles. H 22 : There is difference etween trding volume of pre nd post hlt, given hlt durtion in different cycles. Tle 7. vrince nlysis (ANOVA), comprison of the difference etween trding volume of pre nd post hlt, hlt durtion in different cycles Sum of squres Df Men of squres Significnce level Inter- group 58/ /348 6/266 0/001 Intr group 358/ /088 Summtion 416/ Since the significnce level is lower thn 5%, i. e. 1%; H 21 is rejected ut H 22 cn e ccepted. Tle 8. Duncn Test of the difference etween trding volume given the hlts in different cycles Mx error 5% Time period Period of 1-7 dys Period of 8-15 dys Period of dys More thn 30 dys Significnce level numer A 13/6330 1/000 14/ / /4314 0/149 igure2. common letters refer to no difference trding volume As shown in Duncn tle nd chrt, it seems tht the volume of trding hs incresed for longer hlt durtions. H 2 : There is significnt correltion etween the trding symol s hlt durtion nd the shre s trding volume. H 21 : the numer of dys does not ffect the trding volume efore nd fter the hlt. H 22 : the numer of dys ffects the trding volume efore nd fter the hlt. 1055

6 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 Model Correltion Tle 9. summry of regression model Determintion determintion error of estimtion Significnce level 2 0/202 0/041 0/033 1/839 5/039 0/027 Tle 10. s of regression Price chnge on the opening dy=β0+ α dys of hlt Model 2 Nonstndrd stndrd T Level of significnce Dependent vrile Price chnge on the opening dy Independent vriles error (Constnt) Numer of hlt dys et The results collected in these tles show tht while the correltion etween two vriles nd the predicted gin from independent vrile re low, ut the significnce level of test is less thn 5 %, therefore liner reltion ws estlished etween two vriles. Note tht the significnce level of T test for hlt dys is less thn 5 %, (2.7%) therefore; independent vrile my e le to ffect the trding volume, so tht it could hve positive effect of on dependent vrile. Thus the numer of hlt dys hs positive effect on trding volume, so tht the longer the hlt time is the higher trding volume would e. (2) The difference of trding volume= (hlt dys) H 3 : Monthly returns differ depending on hlt durtion in different cycles. H 31 : Monthly return does not differ efore nd fter the hlt depending on hlt durtion in different cycles. H 32 : Monthly return differs efore nd fter the hlt depending on hlt durtion in different cycles. Tle 11. vrince nlysis (ANOVA), comprison of monthly return efore nd fter the hlt ccording to different hlt durtion. Sum of squres Df Men of squres Significnce level Inter- group 18/ Intr -group 116/ summtion 135/ Since the significnce level is lower thn 5%, i. e. 1%; H 31 is rejected ut H 32 cn e ccepted. Tle 12. Duncn Test of trding volumes ccording to different hlts Mx error 5% Time period numer A More thn 30 dys Period of dys Period of 8-15 dys Period of 1-7 dys Significnce level

7 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 igure3. common letters refer to no difference return As seen in tle 12 nd chrt 3, the return of shre decreses y incresing hlt durtion. H 3 : There is significnt correltion etween symol s trding hlt durtion nd the return of shre trding. H 31 : Hlt durtion does not ffect the monthly return efore nd fter the hlt. H 32 : Hlt durtion ffects the monthly return efore nd fter the hlt. Tle 13. summry of regression model model Correltion Determintion determintion error of estimtion Significnce level Tle 14. s of regression Price chnge on the opening dy=β0+ α dys of hlt Model 3 Nonstndrd Dependent vrile Difference of returns in efore nd fter hlt Independent vriles (Constnt) Numer of hlt dys stndrd t et error Level of significnce 0/ These results show tht while the mount of gined correltion etween two vriles nd the prediction gined from independent vrile re low, the significnce level of test is less thn 5 %, therefore liner reltion ws ssumed to exist etween two vriles. It is seen tht the significnce level of T test for hlt dys is 3.1% which is less thn 5 %, therefore; this vrile my e le to ffect the trding volumes, so tht it could hve negtive effect of on dependent vrile. Thus it seems tht the numer of hlt dys hs negtive effect on returns, so tht the longer the hlt time period is, the lower return would e. 1057

8 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 (3) The difference of return = (hlt dys) CONCLUSION CONCLUSION O H 1A H 1 : There is significnt correltion etween hlt durtion on the trding of symol nd the process of discovering the price of tht stock. Vrince nlysis test ws used in order to test H1 which clims the price chnging on the opening dy differs depending on the hlt durtion. The results of the test (tle 3) show tht its significnce level is out 5% (5.7%) nd therefore price chnging on the opening dy is significntly different ccording to occurred hlts nd it seems tht different hlt durtion hve significnt effect on price vrition on opening dy. These differences hve een shown properly in Duncn Test. (chrt 1). As result, H11 is rejected ut H12 is proved. Oviously, price chnge differs on the opening dy depending on hlt period. Also, regression ws used to mesure how the hlt durtion effects the price chnges on the opening dy (tle 6). Results from regression Test (with positive effect of ) showed tht hlt durtion hs positive effect on price chnges on the opening dy, which mens the higher numer of hlt dys, the higher price chnges would e on the opening dy. It is worth to note tht this kind of chnge nd increse of price involves only the opening dy not the whole month fter the opening. CONCLUSION O H 2A H 2 : There is significnt correltion etween symol s trding hlt durtion nd the volume of shre trding. Vrince nlysis test ws used in order to test H 2 which clims the trding volume efore nd fter the opening dy differs with hlt durtion in different periods. The results of the test (tle 7) show tht its significnce level is 1% nd therefore the differences of monthly trding volume concerning efore nd fter the hlt is significntly different for different hlts. This difference ws shown using Duncn Test. (chrt 2). As result, H 21 is rejected ut H 22 is proved. Oviously, the difference of trding volumes efore nd fter hlt differs depending on hlt durtion. Also, regression ws used to mesure how the hlt durtion ffects the difference of trding volumes (tle 10). Regression Test (positive effect of ) showed tht dys of hlt hd positive effect on trding volume, so tht the higher numer of hlt dys, the higher trding volume would e. CONCLUSION O H 3A H 3 : There is significnt correltion etween symol s trding hlt durtion nd the return of shre trding. Vrince nlysis test ws used in order to test H 3 which clims tht the difference of monthly return efore nd fter hlt differs depending on the hlt durtion in different periods. The results of the test (tle 11) show tht its significnce level is 1% nd therefore the monthly return efore nd fter the hlt is significntly different for different hlts. This difference hs een shown properly in Duncn Test. (chrt 3). As result, H 31 is rejected ut H 32 is proved. Oviously, the difference of monthly return efore nd fter hlt differs depending on the hlt durtion. Regression ws used to mesure how the hlt durtion ffects the monthly return (tle 14). Results from regression Test (negtive effect of ) showed tht the hlt durtion hd negtive ffect on the monthly return, so tht the higher the numer of hlt dys, the lower monthly return would e. Suggestions nd limits of the reserch We suggest the following topics for future reserch To study the reltion etween symols trding hlt durtion nd return rte of investment (ROI). To study the reltion etween symols trding hlt durtion nd liquidity. We fced the following limittions of the reserch which if removed more comprehensive study of the suject would e possile. Lck of comprehensive nd up-to-dte dt nk to conduct reserch, which mde the gthering the dt presented in this study very difficult nd time consuming. Instility of politicl sttes nd deep vulnerility of cpitl mrket which cn influence the results of the tests 1058

9 Intl. Res. J. Appl. sic. Sci. Vol., 7 (13), , 2013 REERENCES De Ridder A Trding suspensions nd insider ctivity t the Stockholm stock exchnge, Skndenvisk Enskild nken quretly Review Engelen PJ, Kir R Empiricl Evidence on the role of trding suspensions in disseminting new informtion to the cpitl mrket, Utrecht university. erris SP, Kumr R, Wolf GA The Effect Sec-Ordered Suspensions on Returns, Voltility, nd trding volume, inncil Review,27,1-34. Hopwell MH, Schwrts AL Temporry trding suspensions in Individul NYSE Securities, journl of finnce, Kry Z, Nemiroff H Price discovery round trding hlts on the Monterl Exchnge using trde y trde dt, finncil review, Lee C, Redy M, Seguin P Volume, Voltility, nd New York stock Exchnge Trding Hlts, Journl of finnce, 49, Recep The effects of trding hlts nd dvntge of Institutionl Investors, Evidence from The Istnul stock exchnge. 1059